Project 1: measuring portfolio risk and performance

I just need this: 

(i) a brief introduction 

(iv) a brief description of all the calculations; and

(v) a brief discussion of interesting observations from the results.

Project 1: Measuring Portfolio Risk and Performance

Identify twelve (or more if you want the project to be more realistic) publicly-traded firms that you are familiar with. Obtain the monthly prices for these firms and compute the following risk and performance measures for each of those firms.

1. Mean monthly arithmetic return 2. Mean monthly geometric return 3. Standard deviation of return
4. Beta relative to the market

5. Idiosyncratic volatility using CAPM
6. Sharpe ratio
7. Jensen’s alpha (same as CAPM alpha)
8. Betas relative to all the factors in the 4-factor model 9. Four-factor alpha

Next, using your risk and performance measures, develop a trading strategy, i.e., use past data to rank firms such that higher ranked firms are likely to perform well in the future while lower ranked firms would perform poorly. Create a zero-cost portfolio where you Long firms in the top one third and hold a Short position in the firms in the bottom third. Compute all the risk and performance measures for this new portfolio as well as the Long and the Short portfolios individually.

The data for the project can be obtained from:

  • Yahoo! Finance:, or
  • Ken French’s data web site available at library.html.
    Additional instructions are available in the following video: Carina.mp4?dl=0.
    Please submit a short report (not more than 6 pages, double-spaced) that contains: (i) a brief introduction; (ii) Exhibit 1 with all risk and performance measures for all firms (i.e, a table where the rows are the various firms and the columns are the various risk and performance measures); (iii) Exhibit 2 with the risk and performance measures of the Long, Short, and Long−Short portfolios

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Psychology of Financial Markets (FIN 686): Course Outline: Kumar: February 2021 21

and a plot showing their cumulative portfolio returns; (iv) a brief description of all the calculations; and (v) a brief discussion of interesting observations from the results. In Part (v), please make sure you compare the results you expect to see based on your understanding of “standard” finance theory with the results you actually obtain.

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